Inflation edges higher to 0.6% in July but remains long way short of Bank of England's 2% target.

The pound touched a new three-year low against the euro on Tuesday (16 August), even though data released earlier in the day showed inflation in the UK rose slightly more than expected in the first month following the European Union referendum. Following the release, sterling gained ground against the dollar, rising 0.69% against the greenback to $1.2966.

However, the UK currency was on the back foot against the euro, falling 0.32% to a €1.1478, having previously touched a fresh three-year low of €1.1461.

UK inflation lifted to 0.6% in July, compared with analysts' forecast for a 0.5% reading, following the country's Brexit vote, as the cost of living was pushed up by rising petrol prices and a smaller fall in food prices compared to the year before, according to official data from the Office for National Statistics (ONS).

The ONS added that although the rise "is still relatively low in the historic context" it is still the highest inflation has been since November 2014.

"The pound's decline of more than 10% against both the euro and US dollar since the June referendum has also contributed to a sharp rise in import prices, which climbed at their fastest pace since 2011 in the year to July," said Chris Saint, senior analyst at Hargreaves Lansdown currency service.

"This suggests inflationary pressures may be starting to feed through to the economy more quickly than anticipated, although the headline inflation rate is still some way below the Bank of England's 2% objective for the time being."

Kit Juckes, head of FX at Societe Generale, warned that the dollar could fall even further against its Japanese counterpart, due to a combination of central bank inactivity and disappointing economic data.

"Dollar/yen is falling faster than justified in the very short term by the move in real yields, but that doesn't matter in the middle of August," he said.

"The Bank of Japan is paying the price for being timid and unless the US data today come to their rescue, dollar/yen, dancing on the edge of a cliff at ¥100.20 right now, will slip over it."